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Financial Structure is the specific mixture of long-term debt and equity that a company uses to finance its operations. This financial structure is a mixture that directly affects the risk and value of the business. The main concern for the financial manager of the company is deciding how much money should be borrowed and the best mixture of debt and equity to obtain. The financial manager also has to find the least expensive sources of funds for the company to use. It is also referred to as capital structure. Capital structure as the name implies is one of the most puzzling issues in corporate finance literature. Capital structure basically can be referred to as a firm's financial framework. It is also seen a mixture of a variety of long term sources of funds and equity shares including reserves and surpluses of an enterprise The capital structure of a firm is very important since it related to the ability of the firm to meet the needs of its stakeholders.

The capital structure of a firm explains the ways in which a firm finances its investment and overall operations. It consists mainly of a combination of debt and equity as well as all other sources of finance such as retained earnings etc available to the firm Therefore, proportion of debt to equity is a strategic choice of corporate managers. Financial distress, liquidation and bankruptcy are the ultimate consequences that lie ahead if any major misjudgment occurred following any financing decision of the firm's activity. Thus, firms with high leverage need to allocate an efficient mixture of capital that will finally reduce its cost. Capital structure constitutes a substantial part of an organization and therefore is significant in a company's financial operations. More so, financing decisions of firms are very crucial for the financial wellbeing of the firm. Researchers have continued to analyze capital structures and try to determine whether optimal capital structures exist. An optimal capital structure is usually defined as one that will minimize a firm's cost of capital, while maximizing shareholder's wealth. The debate of optimal capital structure has been the focal point of the finance literature for previous several decades.

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